Warengeld

What Is Warengeld?

Warengeld, also known as commodity money, is a form of money whose value comes from the commodity of which it is made. Unlike representative money or fiatgeld, which derive their value from government decree or backing, commodity money holds intrinsic value in itself. This means that even if it were not used as a medium of exchange, the underlying commodity would still possess economic value. Historically, common examples of Warengeld include precious metals like gold and silver, but also everyday items such as salt, grains, tobacco, or even cattle. The study of Warengeld falls under the broader field of monetary economics. For a commodity to effectively serve as Warengeld, it typically needs to be durable, divisible, portable, widely accepted, and relatively scarce. It serves the primary functions of money: a medium of exchange, a unit of account, and a store of value.

History and Origin

The concept of commodity money predates formal currency systems, evolving naturally from barter economies where direct exchange of goods faced significant limitations. Early societies recognized the convenience of using specific commodities that were widely desired and possessed inherent value as payment. For instance, in ancient Mesopotamia, accounting tokens were used as early forms of money, and in other cultures, salt was a valuable commodity, even forming the root of the word "salary."¹⁴ Gold coins first emerged in Lydia around 600 BC, laying the foundation for international trade across empires.¹³ The transition from pure barter to commodity money represented a significant step in the evolution of economic systems, providing a more efficient means of facilitating transactions.¹² The gold standard, a prominent example of a commodity-backed monetary system, saw widespread adoption among major nations by 1912, fostering a stable global trade environment.¹¹

Key Takeaways

• Warengeld is money whose value is derived directly from the material it is made of.
• Historically, common forms of Warengeld include gold, silver, salt, and grains, valued for their inherent utility or scarcity.
• It functions as a medium of exchange, unit of account, and store of value due to its intrinsic worth.
• The adoption of Warengeld helped overcome the limitations of simple barter systems by providing a more efficient means of trade.
• The gold standard is a notable example of a modern Warengeld system, tying national currencies to a fixed quantity of gold.

Interpreting the Warengeld

The interpretation of Warengeld centers on its inherent properties and how they fulfill the functions of money. Since its value is tied to the physical commodity, its purchasing power is influenced by the supply and demand of that specific commodity. For example, if a society uses gold as Warengeld, an increase in gold mining could lead to inflation, as more gold becomes available, potentially decreasing its value relative to other goods and services. Conversely, a decrease in supply could lead to deflation. The stability of a Warengeld system largely depends on the stability of the commodity's market value. Its acceptance is often more organic, as individuals recognize its tangible worth without needing a government decree to validate it.

Hypothetical Example

Imagine a remote, self-sufficient community where chickens are used as Warengeld. Each chicken, while also serving as a source of eggs and meat, is commonly accepted as payment for goods and services.

• A farmer wants to buy a new plow. He offers five chickens to the blacksmith.
• The blacksmith accepts, knowing he can either raise the chickens for food, trade them for grain, or use them to acquire other necessities.
• A tailor charges one chicken for mending clothes.
• A builder charges twenty chickens for constructing a small shed.

In this scenario, chickens serve as a widely accepted medium of exchange. Their inherent value (food, eggs, breeding) underpins their use as money, distinguishing them from a symbolic currency. The community recognizes their value, making transactions smooth and efficient, overcoming the complexities of a pure barter system where the blacksmith might not want grain, or the tailor might not need a new plow.

Practical Applications

While pure Warengeld systems are largely historical, their principles underpin aspects of modern finance and economics. The most prominent historical application was the gold standard, where national currencies were directly convertible into fixed quantities of gold.¹⁰ This system sought to instill confidence in a nation's currency by linking it to a tangible asset. Central banks worldwide continue to hold substantial gold reserves, often seen as a hedge against the instability of fiat currencies, suggesting a "shadow gold standard" in some contexts.⁹

In modern commodity markets, while specific commodities like oil or agricultural products are not typically used as direct money, their significant economic importance means their prices can profoundly impact global trade and financial stability. The trading of raw materials and natural resources often involves complex financial instruments, but the underlying assets are still commodities with intrinsic value. The concept of liquidity in these markets often relates to how easily a commodity can be converted into widely accepted currency.

Limitations and Criticisms

Despite its historical prevalence, Warengeld systems face several significant limitations. One major drawback is the inherent volatility of commodity prices. The value of the money is subject to fluctuations in the supply (e.g., discovery of new gold mines, agricultural harvests) and demand for the commodity itself, leading to economic instability.⁸ For example, under a gold standard, new gold discoveries could lead to inflation, while a lack of new supply could hinder economic growth by limiting the money supply.⁷

Another criticism is the cost and inconvenience associated with its use. Storing, transporting, and dividing physical commodities like gold or cattle can be cumbersome and expensive, particularly for large transactions. Furthermore, the supply of Warengeld is not easily adjustable to the needs of a growing economy or to counteract economic crises. When a central bank cannot expand the money supply in response to a financial crisis because it is constrained by a fixed gold supply, it can lead to severe economic contractions.⁶ The Great Depression highlighted many of these vulnerabilities, as countries on the gold standard faced severe economic downturns due to a rigid money supply and banking panics.⁵ The Federal Reserve Bank of Cleveland has elaborated on how the gold standard impacted prices and exchange rates, noting its inflexibility and tendency to transmit financial shocks internationally.³, ⁴

Warengeld vs. Fiatgeld

The fundamental distinction between Warengeld (commodity money) and Fiatgeld (fiat money) lies in their source of value.

While Warengeld's value is inherent, its supply can be unpredictable and inflexible. Fiatgeld, conversely, has no intrinsic value but gains its worth through government declaration and the public's confidence in its acceptance for debts and transactions. The modern monetary system predominantly uses fiatgeld, allowing central banks greater flexibility in managing the money supply to stabilize economies, though it also carries the risk of inflation if not managed responsibly.

FAQs

What are some historical examples of Warengeld?

Historically, many items have served as Warengeld. Beyond gold and silver, which were widely used globally, examples include shells (like cowrie shells in Africa and Asia), tobacco in colonial America, salt in ancient Rome and other regions, large stones (like Rai stones on the island of Yap), and various grains or livestock.²

How is the value of Warengeld determined?

The value of Warengeld is determined by the supply and demand for the underlying commodity in the market. If a commodity is scarce and highly desired, its value as Warengeld will be high. Its utility outside of being money also contributes to its inherent worth.

Why did societies move away from Warengeld?

Societies largely moved away from pure Warengeld systems due to several disadvantages. The supply of commodities is often inflexible, making it hard to adjust the money supply to economic needs.¹ Commodities are also often bulky, difficult to transport, and their value can fluctuate significantly due to non-monetary factors like new discoveries or production changes, leading to economic instability and difficulties in controlling inflation or deflation.

Does Warengeld still exist today?

Pure Warengeld systems are rare in modern global economies. Most countries use fiatgeld. However, the principles of Warengeld persist in various forms, such as the continued role of precious metals like gold as a reserve asset for central banks and as an investment for individuals seeking a store of value that is independent of government policy. While not directly circulating as money, these commodities maintain their intrinsic economic value.